In “real” inflation adjusted terms GMO expects US equities will get hammered over the next seven years.

GMO offers this disclaimer.

*The chart represents local, real return forecasts for several asset classes and not for any GMO fund or strategy. These forecasts are forward‐looking statements based upon the reasonable beliefs of GMO and are not a guarantee of future performance. Forward‐looking statements speak only as of the date they are made, and GMO assumes no duty to and does not undertake to update forwardlooking statements. Forward‐looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results may differ materially from those anticipated in forward‐looking statements. U.S. inflation is assumed to mean revert to long‐term inflation of 2.2% over 15 years.

Measuring the Bubble

If one assumes 2.2% inflation per year, then the nominal decline is on the order of -3.4% per year for seven years.

Compared to Hussman, GMO is outright optimistic. In Measuring the Bubble, Hussman forecast stocks will decline by two-thirds over twelve years.

I expect the S&P 500 to lose approximately two-thirds of its value over the completion of this cycle. My impression is that future generations will look back on this moment and say “… and this is where they completely lost their minds.” As I’ve regularly noted in recent months, our immediate outlook is essentially flat neutral for practical purposes, though we’re partial to a layer of tail-risk hedges.

I side with Hussman but even GMO’s optimistic forecast would crucify pension funds.